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Oct 16, 2006

The Legal Line

Ed Maldonado

Dear Ed:We [my company] have been carefully following the progress of Universal Service Fund contribution changes since 2002. We have both wholesale and resale divisions so it is important to us. I can say that I am knowledgeable on most aspects of USF contributions as the regulatory compliance officer of the company. That was until last month. I was forwarded an article by George Mason University professor Thomas W. Hazlett, entitled “Universal Service Telephone Subsidies: What Does $7 Billion Buy?” by a friend who works for [a large CLEC]. It was a report for an advocate group called the Seniors Coalition. His attached comment to me was, “How can they enforce it, if they can’t account for it?” So I read the article and another I found from the Internet by Michael Fox, the government affairs manager for RT Communications Wyoming; and Jeffrey H. Smith, Chairman, V.P., and division manager for GVNW Consulting, Inc. The articles addressed mostly rural telephone expenditures, but this is just one area that I know USF contributions support. I was completely floored by both articles. Every quarter my company now must report 499Q’s, exchange CPNs, report all sorts of circuits and international revenues and expend time and money to do so. The reason is because law, regulation, and FCC rules say to report and contribute to the USF. I was under the delusion that it went to schools and universities and similar true public “needs.” Now it appears that the control over how it is being spent is at best lax and a source of debate as to how it is being spent. This really needs to be reviewed by Congress before it goes too far. I am constantly on the FCC website and see the public Notices of Liability for failure to contribute to the USF and submit required reports and documentation growing. Now it all seems as if we are funding an old fashion governmental slush fund. My question is: can you explain this all to me in some way that makes some kind of sense? I can’t and I’m really disheartened by the whole thought of what’s going on with the USF. I have attached the links to the Hazlett articles in case you submit this question to Legal Line. I hope people in the industry read it.Signed “How can they enforce it, if they can’t account for it?”PS: The Hazlett report release is on the site at ID=247Dear HOW:I can affirmatively say that I really can’t answer your question or make complete “legal” sense of the issue at this time. This is truly a political issue and your comment about bringing this to Congress is probably the best course of action for those in the industry who are concerned. I have been a long-time advocate of better lobbying and political participation by the prepaid and small to mid-sized carriers, and this issue is indeed another example of why. I have also, in the past, been accused of not being 100% complete in explaining every aspect of the issues presented (in a responsive column of 2000 words or less), so I think it best that I merely frame the issues that I feel a player like you should be mindful of in the debate, and available avenues to address these issues. This is more a civics approach than a litigation, administrative law or appellate approach, but one I feel is what is needed at this time. To begin, just because you question the end-allocation of USF contributions, do not fail to live up to the obligations required by law and FCC regulation. The FCC Rules still apply and the FCC has full authority to enforce these rules until the courts or Congress say otherwise. In your case, HOW you handle regulatory compliance for your company is the best position to see this. Do not advocate USF protest by non-reporting or non-payment where and when required, simply because of accountability issues in USF expenditures. I, too, read the FCC Notices and have seen two disbarments by the FCC of recipients under the E-Rate program. There is monitoring going on, and it may be a question of too few government resources addressing the accountability issue. Second, I encourage reading of the Hazlett report with a grain of salt as to the terms used. References are made to taxpayers and USF being more like a tax in structure. It is not. It is a regulatory fee borne by common carriers and interconnected VoIP providers that are classified as USF contributors. The USF is recovered by these contributors through charges to end-users or built into rates sold to the public. If you are a common carrier or interconnected VoIP provider in the prepaid industry, you bear the collection and remittance of this and you are affected by all aspects of USF, including how its spent. The point is to be clear and well founded in the regulatory and statutory terms that are used, and know how you are affected in dollars and cents by the USF.Third, make the time to call your local Congressman or Senator, set up an appointment on behalf of your company (be it small or large) with them or their staff, and bring the issue home. It would be great to organize a structured lobbying effort, but in the interim, work locally and independently if you must. Politicians count potential voters when issues of legislation are concerned. Your visit or call to them on USF accountability may yield some results – especially if they were recently elected to office.Finally, we need a blog and broader press coverage on this to pass on information related to the topic. We need better information on the issue for our Congressional representatives and ourselves. A good start begins by actually reading Hazlett’s report, but be advised, it is 91 pages long. There is a rebuttal, by Michael Fox and Jeffrey H. Smith, that is quite humorous in the to and fro debate over rural telephony expenditures and their justification. A link to this article can be found on our website, I encourage everyone to read both articles, and keep a careful eye on this issue. I do not know if this answers your questions HOW, but if not contact me and we can talk. That goes for all in the prepaid industry.Good Luck and Success in the Industry

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